AMREP CORP. annual report, FY2021

AMREP Corporation — Form 10-K Summary

Reporting period: Fiscal year ended April 30, 2021, compared with fiscal 2020. The filing is an annual 10-K; the requested “2020 Q4” period does not match the filing period.

Business Context

AMREP operates primarily through two segments: land development and homebuilding. Its operations are concentrated in Rio Rancho and adjoining areas of Sandoval County, New Mexico, with additional properties and mineral rights in Colorado and Florida. The Company owned approximately 18,000 acres in Rio Rancho as of July 1, 2021 and had 19 full-time and one part-time employees.

Land development remained the primary business, while homebuilding was launched in New Mexico in 2020 through Amreston Homes. The Company has no foreign sales or operations.

Financial Performance and Key Metrics

Metric	FY 2021	FY 2020	Change
Total revenue	$40.069 million	$18.783 million	Up 113%
Operating income (loss)	$9.047 million	$(7.959) million	Improved
Net income (loss)	$7.392 million	$(5.903) million	Improved
Diluted EPS	$0.95	$(0.73)	Improved
Net cash from operations	$12.609 million	$0.765 million	Up $11.844 million
Cash and cash equivalents	$24.801 million	$17.502 million	Up $7.299 million
Notes payable, net	$3.448 million	$3.890 million	Down $0.442 million

Revenue mix: Land sales were $25.175 million, home sales were $3.079 million, rental revenue was $0.716 million, and building sales and other revenue was $11.099 million. Building sales and other revenue included $9.493 million from sales of a Rio Rancho retail building and a Palm Coast warehouse.

Margins: Consolidated gross profit was approximately $14.467 million, or 36.1% of revenue, compared with a gross loss in fiscal 2020. Operating margin was approximately 22.6% and net margin approximately 18.4%. New Mexico land sales had a 31.3% average gross profit percentage before indirect costs, compared with 16.7% in 2020. Homebuilding gross margin was 16.1%.

Segment results: Land development generated $32.431 million of revenue and $10.091 million of net income. Homebuilding generated $3.081 million of revenue and an $84,000 net loss. Corporate activities generated $4.557 million of revenue and a $2.615 million net loss. Consolidated EBITDA, as defined by the Company, was $10.629 million versus negative $7.422 million in 2020.

Cash flow and liquidity: Operating cash flow was $12.609 million. Financing activities used $5.305 million, including $5.116 million of common-stock repurchases, while capital expenditures were only $5,000. Cash increased to $24.801 million at year-end. The Company stated that it expected to have adequate cash, bank financing and operating cash flow for anticipated fiscal 2022 capital expenditures and land development spending.

Debt: Net notes payable totaled $3.448 million at April 30, 2021. The Company had a $4.0 million revolving line of credit with no balance drawn at year-end. Debt maturities disclosed after April 30, 2021 were $1.225 million in fiscal 2022 and $2.257 million in fiscal 2023. The filing states that applicable subsidiaries were in compliance with financial covenants at year-end.

Balance sheet: Total assets were $97.366 million and shareholders’ equity was $88.889 million. Real estate inventory was $55.589 million, including $49.918 million of New Mexico land inventory. Investment assets declined to $13.582 million from $18.644 million, primarily because of property sales.

Material Changes Versus the Prior Comparable Period

Revenue more than doubled, principally from higher builder demand for developed lots, initial home sales, and sales of two buildings.
Land sale revenue increased 58% to $25.175 million, while acres sold increased to 133.7 from 89.3.
The Company closed on 14 homes at an average selling price of approximately $220,000. At April 30, 2021, 33 homes were in production, including 23 under contract representing expected sales revenue of $6.567 million, subject to cancellations and change orders.
General and administrative expense fell 58% to $5.420 million. Fiscal 2020 included a $2.929 million non-cash pension settlement loss and a $5.046 million non-cash impairment charge related to former Florida business assets; no comparable charges were recorded in 2021.
Other income of $1.028 million in 2021 included a $650,000 settlement payment and $300,000 of Paycheck Protection Program debt forgiveness.
The frozen defined benefit pension plan’s underfunding declined to $476,000 from $5.014 million, after a $1.847 million voluntary contribution and favorable investment results.
The Company repurchased and retired approximately 831,000 shares during fiscal 2021 for total consideration of approximately $5.116 million. The repurchase program was terminated in November 2020.

Outlook, Risks, Contingencies, and Unusual Items

No quantitative revenue, earnings, or margin guidance was provided.
Management expects future growth to depend on demand for residential lots and homes, regulatory approvals, development financing, and the acquisition or expansion of land holdings.
COVID-19 reduced sales pace and delayed certain projects and deliveries through restrictions and reduced availability of municipal and private services. Further outbreaks, economic deterioration, reduced housing demand, or inability to access financing could materially affect revenue, cash flow, liquidity, and debt covenant compliance.
Construction costs and schedules remain exposed to lumber, steel, concrete, copper, petroleum-based materials, tariffs, supply-chain constraints, and shortages of skilled labor.
The Company is geographically concentrated in the Rio Rancho/New Mexico market and relies heavily on a limited number of homebuilder customers. Four homebuilders accounted for 97% of 2021 Rio Rancho land sales, and three customers each exceeded 10% of consolidated revenue.
Real estate development depends on entitlements, environmental and zoning approvals, infrastructure, market demand, and access to financing. Inventory and investment assets may require future impairment charges if expected cash flows or property values decline.
The pension plan remains underfunded, although no minimum contribution was expected to be required in fiscal 2022. Estimated pension benefit payments from plan assets were $2.580 million in fiscal 2022.
The IRS was examining the Company’s fiscal 2019 federal income tax return; no proposed adjustments had been made as of the filing date.
The Company reported various ordinary-course legal claims and stated that they were not expected to materially affect consolidated financial position, liquidity, or results of operations.
Subsequent to year-end, the Company acquired a 15-acre La Mirada property and obtained a development loan with a maximum principal amount of $7.375 million. Outstanding principal was $5.448 million as of June 30, 2021.

Investor Verification Priorities

Verify the sustainability of the substantial improvement in land-sale margins and the concentration of sales among four builders.
Reconcile operating cash flow with land-sale proceeds, infrastructure reimbursements, building sales, customer deposits, and changes in real estate inventory.
Review the timing, collateral, covenants, and repayment requirements of the development loans, including the post-year-end La Mirada financing.
Assess the conversion of the 23 contracted homes and the remaining 10 homes in production into completed closings and cash receipts.
Evaluate exposure to New Mexico housing demand, regulatory approvals, construction inflation, labor shortages, and future real estate impairment charges.
Monitor pension funding requirements, investment performance, discount-rate sensitivity, and projected benefit payments.
Consider the nonrecurring contribution of building sales, settlement proceeds, PPP debt forgiveness, and the absence of 2020 impairment and pension-settlement charges in interpreting 2021 earnings.
Review the Company’s thin trading volume, concentrated ownership, absence of cash dividends since fiscal 2008, and share repurchase activity.